On a cloudy afternoon in 2012, Matt Eyring was driving through the mountains near Provo, Utah, as he considered the challenge a head as chief strategy and innovation officer at Vivint, awould-be smart home services provider. Like the road he was driving, his career had taken many twists and turns to this point. He’d worked as a consultant at Monitor, graduated from Harvard Busi- ness School, and co-founded Innosight with Harvard’s famous disruptive innovation professor, Clayton Christensen. Most recently he had worked as managing partner at Innosight, where he had directed an impressive team of consultants delivering innovation results for clients.
Recently he’d been offered the position of chief strategy and innovation officer at Vivint, and had decided to jump onboard. Eyring joined during a time of tremendous change for the company. Vivint had been acquired for $2 billion by the Blackstone Group. Investors anticipated a future where the alarm system provider transformed into a provider of a wide variety of “smart home” services. Eyring had been tasked with identifying and piloting Vivint’s strategic direction. How could Vivint morph into a tech company providing an array of smart home solutions? Todd Pederson, the company’s CEO and founder, had conceptualized a future where Vivint provided smart home solutions to all, and Eyring was charged with determining what steps needed to be taken to accomplish this vision. Eyring needed to find—and take advantage of—the most profitable growth options within the smart home arena.
The founder of Vivint, Todd Peterson, was a business student at Utah Valley University in 1990. One of 10 children, Pederson had to be financially independent from the beginning of college. He worked odd jobs to pay the bills, including construction and cleaning homes in affluent neighborhoods. To find new customers, Pederson began to knock doors in wealthy neighbor- hoods. He found that he was talented at door-to-door sales; he didn’t mind the rejection associated with the task and quickly honed his sales skills.1
During the summer of 1992, Pederson and a cohort of his friends moved to Arizona to sell pest control door to door for Terminex, a large company in the pest control business. During that summer, Pederson and his cohort were so successful that he was asked by Terminex to hire 80 additional salesmen. This experience prompted Pedersen, along with Keith Nellesen
(also a co-founder of Vivint) to create their own business selling pest control as a third party.2 In the spring of 1993 Pedersen dropped out of school, and began running the operation full time. At the peak of selling pest control, Pederson and Nellesen’s team was identifying 30,000 new customers per year for Terminex and other companies. In 1998 much of that changed, however, when two of Pedersen’s employees tested selling security systems door to door. Ironically, this original test failed, but both salesman came back with a new understanding of the industry and were adamant that home security sales were the next big opportunity for the team. Pederson saw their vision and believed home security systems could be the future of the
company. So, APX Alarm security solutions was incorporated in 1999.3
For a time, APX focused primarily on selling security systems. The business grew quickly, with over 900 systems sold in one summer. The security provider partners, however, were over- whelmed and could not provide the customer support and service needed to keep customers happy. Leadership at APX saw opportunity in the challenge—if their customers were experiencing this much pain with current security offerings, there would certainly be a place for APX to install and service home security systems, not just sell them.
In 2006 APX began installing and maintaining home security solutions. From the beginning, this product switch came from a desire to better serve customers. Much of this expansion, also licensed to begin in Canada, was possible because of a $75 million credit facility funded by Gold- man Sachs, Jupiter Partners, and Peterson Partners. Pedersen wanted to grow the business, and this injection of funding was necessary for APX to move to the next level.
In 2010, four years on, Pedersen and his team noticed the stagnation of the security alarm market. There wasn’t much innovation in the business. Security panels were the same as they had been for years, offering only basic alarm information to customers. APX’s team invested heavily in R&D to create a home display panel that would provide more information. APX developed energy management software that allowed customers to manage their thermostats to improve energy efficiency. This innovation was a step forward in transforming APX into an innovative provider of smart home solutions.
In 2011, APX Alarms rebranded as Vivint, with a highly recognizable bright-orange logo. The new name represented an overall shift in what Pedersen and his team wanted to achieve.“Vive” is a root that connotes living intelligently. Just one month later, Goldman Sachs led a $565 million debt financing round.4
Vivint Solar and SmartHome
At this point, Pederson and his team considered expansion into a new industry: solar panel technology. Vivint had discovered that their new display panel, incorporating SmartHome technology, increased customer retention. This data led to a crucial decision: Vivint would grow smart home solutions for a tech-savvy and changing world.
Solar was a logical step forward. Vivint already had a national sales force with experience in energy monitoring via their panel. Moreover, solar was an attractive market, with only regional and local players at the time. With a growing customer base, offering solar panels was a logical next step. Projections looked high for Vivint’s growth, with some analysts believing that Vivint would soon own the largest share of the market.5
Vivint Solar was created as a subsidiary of Vivint, able to function separately but utilize firm resources. Using a $75 million initial investment from US Bancorp, the division began in New Jersey with plans to expand to many other US states. Vivint set up its solar business by allowing customers to pay for its panels in small monthly installments, instead of requiring upfront purchase. This “third-party” ownership model was popular among major solar carriers and investors as it allowed household consumers to adopt solar energy on a personal level.
In 2012, the Blackstone Group acquired Vivint for $2 billion. At this time it had around 675,000 customers and had grown substantially. Further, Vivint Solar was spun off, becoming its own separate, but related, company.6 It continued to grow through 2014, when it went public.7 That was the year Matt Eyring was hired.
Though Vivint had been growing substantially, Matt was tasked with transforming the firm to become a technology-oriented smart home solutions provider. In his drive through the canyon, Matt pondered the challenge of growing Vivint sustainably into a tech company that was agile enough to succeed in the industry, while fending off challenges from companies like Amazon and Google. Over the ensuing five years, Eyring and his team pursued a number of different growth options with mixed success.
Commercial Security | Vivint Properties
As Vivint continued to sell SmartHome and security packages to residential customers, an opportunity to expand into commercial security systems presented itself. Residential customers and contacts frequently asked if Vivint could provide a security system for their small businesses. Through this indirect sales channel, Vivint had signed up more than 10,000 small business customers by the end of 2013.
Because commercial customers had already shown interest in Vivint security, executives deter- mined to launch a dedicated sales channel to focus solely on the commercial market. The initial goal was to sign up 5,000 new customers in 2014. Half of this goal would be achieved through sales reps cold calling on small businesses, and the remaining portion would come through inside sales, where a potential customer would call Vivint looking to buy a commercial security package. Additionally, direct-to-home referrals occurred when a customer who had previously purchased a residential security package requested a security package for their business or office.
A pilot sales team was launched in Salt Lake City with the hope of getting 10 sales per month per rep. Sales reps had to be careful about which businesses they approached because the existing residential security product could only service a certain size building. If a commercial building was too large, the sensors were too far apart to function reliably. Moreover, the level of security required for a commercial account was much higher than for a typical residential account. In order to solve this problem, a product manager was hired to develop products that would be more effective for the commercial security business. These products included items such as different door locks, Ethernet-connected cameras, DVRs with 24/7 storage, and outdoor cameras. With these additions, Vivint’s commercial business would be able to provide higher quality service to a wider variety of businesses. But in 2014 Vivint did not yet have a full set of products that were designed to meet the needs of the larger commercial customers.
As 2014 progressed, it became apparent that Blackstone, and senior management, wanted to pursue even more aggressive sales and profit targets. The commercial team, with its original goal of 5,000 new customers in 2014, was asked to triple their goal to 15,000 customers in order to support sales and profit goals. In response, the pilot team in Salt Lake City grew and new teams were added in Las Vegas, Nevada, and Modesto, California.
As the size of sales teams grew, the quality of salespeople deteriorated. Only the original, top sales people were coming close to the expectation of 10 sales per month. It seemed that the age, experience, and skill set of a successful salesperson for a commercial account was higher than for a residential account. Consequently, the sales team couldn’t scale fast enough to reach 15,000 new customers in 2014 alone. Once the CFO of Vivint realized that the goal of 15,000 new customers was unreachable, the commercial channel became an easy target for budget cuts in order to reach profit targets. Although the commercial venture did reach the original goal of 5,000 new customers, the commercial sales teams were disbanded and resources were diverted to other projects. Vivint still sells existing security system products into the commercial market through inside sales and direct-to-home referrals, but it no longer has a business unit with a salesforce dedicated to growing the commercial segment.
Some within Vivint wondered if it was time to create another focused effort on the commercial segment with the resources needed to build the right product mix and a dedicated salesforce with the right skill set to effectively sell to commercial customers.
In December 2015, Vivint decided to actively pursue the provision of SmartHome packages to multiunit properties and founded Vivint Properties as a new business unit. The technology required for monitoring a rental apartment and a single home was fundamentally the same. “Apartment res- idents and homeowners have the same use case for a piece of smart home technology,” said Jeff Evans, a product manager for Vivint Properties. “Whether you are at an apartment or at a home, you want to be able to lock your doors remotely, arm your security system, turn on and off your lights, and check your doorbell cameras.”
As Vivint considered the total market for smart home technology, they realized that more than 30 percent of the population was renting, so they decided to target high-end consumers in rental properties to capture an additional 8–40 million households. Users in apartments had the same use cases as those living in homes. The product was the same and was supported by the servers and backend of the Vivint ecosystem. Finally, no large competitors were playing in this space. There were a few start-ups and small players, but none that had installed more than 10,000 units. Vivint felt like they would be able to capture significant market share because of their industry-leading products and salesforce skills.
Building and Testing
Leadership in the smart properties initiative wanted to launch the new business unit like a start-up within their company. They started by testing, piloting, and developing a minimum viable product (MVP) before doing a full launch.
Vivint quickly realized that this new market would require a different sales approach. The direct sales approach would not work well for properties management. Harrison Jenkins, the product manager over properties, said, “The approach with smart properties would need to rely much more on developing relationships and leveraging the credibility of the company [than the traditional direct-to-home model].” It would also need to show the managers how they could use Vivint technology to justify higher rents and provide value to their renters. This approach required a salesforce that was more acquainted with enterprise sales. This salesforce was created by hiring a team of five additional sales reps who could be successful in B2B sales. The new sales team would scale as the business grew out of the pilot tests with the MVP.
Being successful in the multiunit property market would require both vertical and horizontal growth. Tom Few, VP of business development and head of Smart Properties, described what this process would look like for Vivint Smart Properties. “A vertical growth can be the first time that we do business with a building. Each building, however, has on average 200 units. Horizontal growth is expanding into 200 other buildings that have 200 units that the same company manages. Really, in this channel, there are about 100 relationships that you have to own. You own those 100 relation- ships and you have 80% of the market. This is why we stress that when we go into a building, the experience has to be the best that the property manager has ever had. This will guarantee us every- thing else. One bad experience will drastically hurt horizontal growth.”
Vivint started with a small pilot test in April 2016 after about six months of research installing 10 units into two different apartment complexes. The test allowed Vivint to determine whether the product would meet the needs of the property managers while simultaneously allowing managers to test whether this added service would allow them to charge higher rent. The pilot tested feasibility for both property managers and Vivint itself.
As they scaled to larger pilot tests, Vivint realized that property managers wanted at least two things that were not included in the smart home package. The first was cellular-enabled devices. Property managers were not able to rely on Wi-Fi for their devices’ connectivity because often renters would use their own routers, leaving the property managers unable to check on properties remotely. The second discovery was that property managers did not want a monitoring system. The system was too likely to be set off by maintenance. Only the cameras and locks really added value for the property managers. Smart locks enabled managers unlock properties remotely, letting potential tenants tour the property without managers needing to be present.
In addition to changes in the product, the tests proved that property managers were able to charge higher rent for each property. In one case, the property was able to increase the entertainment package from $109 to $159 per month. Additionally, adding the SmartHome package resulted in managers receiving significantly fewer complaints and pushback on entertainment package pricing, even though the price had increased.
Vivint Properties is still a huge focus for Vivint as they seek mass adoption by expanding their services to one of the largest untapped markets: rental and multifamily units. This area has huge potential for Vivint, and if done right could lead to millions more families adopting this technology in the future.
Product Expansion | Internet
The initial push for Vivint to have an ISP (Internet service provider) business unit originated from Kevin Ross, a Vivint employee with previous experience in sales and telecommunications. Kevin believed that Vivint’s strategic assets would be easily leveraged to sell Internet services to new and existing customers. Vivint, through its SmartHome product line, already possessed a skilled direct salesforce as well as field technicians and customer support capabilities. These assets were a necessity for successful Internet service providers. Moreover, a pilot study revealed that the percentage of potential customers contacted (via door-knocking) who would consider switching ISPs was higher than those who would purchase a Vivint SmartHome subscription. In fact, market tests on sales pro- ductivity, measured as revenue per doors knocked, showed that selling Internet was two to three times more profitable than SmartHome. Furthermore, research showed that customers who purchased Internet from Vivint were also more likely to sign up for SmartHome. Internet seemed like a natural extension of the Vivint SmartHome product line.
Interestingly, Internet service providers had been viewed with contempt by American consumers. For example, Comcast, a massive ISP, was voted the Worst Company in America in 2010 and 2014 and consistently receives rock-bottom customer satisfaction scores.8 Most customers were dis- satisfied with their ISP but had few better alternatives. The fact that incumbents weren’t receiving high customer satisfaction ratings made the Internet opportunity seem even more attractive.
After finishing its market analysis in 2012, Vivint’s strategic business development team deter- mined that Vivint Internet was a reasonable business opportunity that should be pursued. Although Vivint already possessed assets that would be leveraged in the new Internet business, it still needed to acquire more specialized talent and resources. A small start-up in the Bay Area called SmartRow was identified for acquisition. SmartRow possessed proprietary knowledge with regard to 5 giga- hertz Wi-Fi. Vivint hoped to use this technology to become the first WISP (wireless Internet service provider).9 A WISP provides Internet to a home without needing to install cables or fibers in the home. SmartRow was acquired and rolled into the new business unit, Vivint Wireless, Inc. Several expensive vice presidents were hired to manage efforts in engineering, operations, infrastructure development, and so on. in the new Vivint Wireless business unit.
Vivint Wireless used a technology called local multipoint distribution service (LMDS) to deliver Internet service to homes. Radios, with fiber connections, were placed on cell-phone towers or other tall buildings. These radios would connect wirelessly to antennas on a “hub home” in a given neighborhood. A hub home was where a customer would allow Vivint to install three radios on the roof in exchange for free Internet for life. A hub home could handle 24 other connections before another hub home would need to be installed in the neighborhood. Each fiber-connected radio could handle 100 hub homes.10
Each paying customer’s home would need an antenna installed on its roof. This antenna would be hardwired via Ethernet cable to the home’s router, distributing wireless network. Due to the network delivery system, Vivint Internet had limitations on what sorts of geographies it could service. Luke Langford, general manager of Vivint Internet, said, “Rural communities with five-acre
lots don’t work for us. … And some areas where there are lots of tall mature trees blocking line of sight from cell towers can be problematic. The same goes for densely populated metropolitan areas. We can work in those places, but it’s not as easy. Our service is tailor-made for suburban America.” Vivint Internet service required a two-year contract at $60/month and provided 100 Mpbs speeds.11 After beginning in late 2013, Vivint Internet was operating in markets in Utah and Texas, with roughly 15,000 subscribers by June 2015. Despite what seemed like solid growth, Vivint’s COO demanded higher sales targets and revenue which put pressure on the business unit to generate even faster growth. Vivint sales reps quickly realized that selling internet subscriptions was much easier than selling SmartHome systems. But, as the customer base grew, quality began to deteriorate rapidly. Poorly trained technicians installed radios pointing in the wrong direction, severely decreasing Internet speeds. Some technicians, who were overbooked, rushed through installations and committed errors that would require future attention to fix. Equipment that had been cobbled together in haste in order to get to market frequently malfunctioned. Customers were sometimes left to wait without Internet for several days before technicians could come to the house to fix issues. These quality problems damaged Vivint’s ability to operate as a better alternative to other ISPs like
Comcast, Time Warner Cable, or DirectTV.
Even as Vivint Internet continued to grow, the business unit’s managers knew that the current infrastructure model, utilizing 5 gigahertz technology, would not be sustainable in the long run. Comcast and Time Warner were making large investments in new technology and could easily eclipse the Internet speeds offered by Vivint. Vivint technicians were installing equipment that would soon be outdated, building a larger and larger “debt” for future upgrades for customers in order to stay competitive. Vivint management realized that they would constantly be in a race with these larger competitors to offer the fastest speeds and latest technology.
In 2016, Vivint senior management elected to stop selling new Internet subscriptions until a technology plan for the future could be developed. Vivint Wireless continued servicing existing customers on the legacy networks built in Utah and Texas but did not pursue new customers. This pause was taken to determine whether faster, competitive technology could be developed with an infrastructure that would support profitable growth. Once faster, competitive technology has been developed, Vivint Internet planned to resume expansion into new suburban markets where there are few alternative ISP choices for customers.
Acquisition and Integration | Space Monkey
In 2011, Alen Peacock and Clint Gordon-Carroll started a company named Space Monkey to compete with other cloud storage providers such as Dropbox, Box, and Google Drive. Space Monkey sought to create a distributed datacenter through creating a network in the homes of its users by storing enterprise data on the extra space of users’ 2TB hard drives.12 As the number of hard drives increased, the total capacity for enterprise storage would increase. These drives would give the user access to half of the total drive capacity to store videos from their smart home cameras or for the personal storage of photos, documents, and other files. The other half of the hard drive would be used for enterprise storage. This method was significantly cheaper than large database centers which need to be cooled and maintain a high level of physical security. Space Monkey’s enterprise storage would encode and store data on many distributed machines. This system provided high-level security because the different pieces of a file were spread out between many hard drives. As more and more customers bought drives, Space Monkey benefited from a network effect. The network of drives would grow stronger, and the total capacity of storage available to sell to enterprise customers grew.
Not long after Space Monkey launched, Vivint developed a relationship with it through an investor in the start-up. The conversation turned to acquisition soon after a meeting with Space Monkey founders and Vivint executives at the Consumer Electronics Show (CES). Executives from the two companies began talking about how Vivint SmartHome and Space Monkey could work together. Originally, the conversation focused around the synergies that Space Monkey had with Vivint Internet. “At the time Vivint was offering the traditional triple play: internet, phone, and tele- vision. Our pitch was ‘why not cloud storage as well?’ to protect their photos and videos,” said co-founder Alen Peacock. “We were talking about a partnership with the internet part of the business. Where Space Monkey would be offered as a part of internet.” The companies imagined the drive being installed as a part of the router in every subscriber home, increasing the effectiveness of the mesh network and allowing the smart drive function to be easily activated in any given home.
While looking at Space Monkey as a target for acquisition, Vivint also examined how it would fit with their salesforce and integrate with their current SmartHome package. According to Alen Peacock, “[At Space Monkey] we had to be really tech heavy. That meant we neglected distribution and marketing. We didn’t spend a lot of time figuring out which channels were really going to get us long term to the right place. So Vivint seemed very complementary in that way. They had a really strong sales channel that was proven . . . they knew how to plug stuff in and get it in front of customers.”
Vivint also thought that this would be an easy sell for the salesforce as an add-on to SmartHome for customers who wanted local back-up of their valuable files. Looking to the future, Vivint was attracted by the idea that a smart home generates a lot of data and would need to store that data somewhere. Space Monkey drives would be a solution to that problem. In addition to the storage, they also saw the potential for a playback DVR feature. This feature would store video footage from a doorbell camera and other household cameras for 24/7 playback. Finally, Vivint had a strong desire to be more of a tech company. The company started as a door-to-door security sales company, and that business model had shaped the culture and business practices of the company. Vivint hoped that acquiring Space Monkey would help them to evolve and become more of a tech company.
The acquisition of Space Monkey took place over the course of four to five months, followed by a difficult process of integration. Both Space Monkey founders came with the company and continued to lead the business unit. As with Vivint Solar, Vivint allowed Space Monkey to continue operating as they had prior to the acquisition. In the beginning, Space Monkey kept the same branding and the same teams. This allowed them to act autonomously from Vivint in building new products while still receiving funding from their new parent company. This approach led to many benefits, but it also led to some resentment from within the company. Space Monkey’s founder, Peacock, referred to this process as “host rejection.” “We were a foreign object within the Vivint ecosystem,” says Peacock. “You could tell, it was pretty thick at times, some resentment from other groups that we were operating that way. The benefit of operating autonomously was that we didn’t slow down at all once we joined. We were able to release new versions of our apps within months of joining. We launched a new product in the second year. That is stuff that wouldn’t have happened if we had to stop and integrate.”
Eventually, in 2017, the company changed the name and branding from Space Monkey to Smart Drive and moved founders Peacock and Gordon-Caroll to different roles in the company. Since being acquired, the Smart Monkey business has been split into two different functions; the DVR function and the enterprise storage function. Vivint uses the Smart Drives as a part of its Smart- Home package. These drives store the data from all Vivint devices installed in the home, allowing for playback of video content for one month.
Since the acquisition of Space Monkey, Vivint has increased revenues through upselling customers on SmartDrive for the purpose of the DVR playback function. Vivint’s focus in the years immediately following the acquisition was on building out the DVR playback function as a way to upsell customers. In doing so, they put the enterprise storage functionality of Space Monkey on hold. As Vivint moves forward with the integration of Space Monkey, there are still questions about whether implementing the original enterprise storage functionality of the drives will be a good option for future growth. As customers become more comfortable storing their photos and data in the “cloud,” it may be more difficult in the future to convince them of the value of a local storage option. There are varied views within Vivint on the value of investing to grow the enterprise storage functionality of Space Monkey.
Retail Partnership | Best Buy
As Vivint looked to grow, the company sought a partnership that would help it to expand through new channels beyond direct sales. In January 2016, conversations with Best Buy Canada at the Con- sumer Electronics Show put them in contact with Best Buy’s chief strategy officer. Despite some
initial pushback within the company, leadership wanted to try expanding through retail channels. Speaking about this pushback, Tyson Chapman, director of retail operations at Vivint, said, “We had already done some retail stuff. It had gone OK, not great. We had done some stuff with Verizon. There was just kind of a reputation that retail doesn’t work. The funny thing about Vivint, and other places as well, is that you try something once and if people feel that it failed than it gets stamped as a failure.”
In mid-2016, Best Buy was selected from a number of candidates as Vivint’s exclusive retail partner. Speaking about this decision, Vivint Director of Business Development Anthony Archibald commented, “We hadn’t reached the customer that was walking into Best Buy in the past, but they are a perfect fit for us. They are customers that are technology minded and are willing to pay up front for technology. Secondly, Best Buy is doing well with traffic unlike some other retailers.” As part of the agreement, Vivint offered a co-branded solution with Best Buy. This solution leveraged the brand name of Best Buy, increasing recognition of the product inside and outside of the store.
The new retail approach was not meant to replace their summer sales model but to add another channel to the customer. Leadership also wanted to try a consultative selling experience which would have sales reps explain the benefits of a SmartHome and tailor the experience to each customer. Vivint hoped to find a partner to be able to piggyback off of its success while building out new sales channels.
The partnership between Vivint and Best Buy began as a pilot program in one store in San Antonio. In order to have a successful test, Vivint sent their best sales reps to Texas. Dressed in Best Buy blue, Vivint sales reps went to work. It didn’t take long for headquarters to realize that retail sales required a different approach than direct-to-home summer sales. Additional training was required to help transition the direct-to-home sales representative to a more effective retail sales approach. As Archibald put it, “for the most part, reps that are in stores are more endurance workers than sprinters like the summer sales people.” This was a fundamental change for the retail salesforce. In order to develop this expertise and provide the needed training, management flew to Texas and sold side by side with sales representatives to help them develop an effective sales approach. After a successful test during the holidays in San Antonio, the pilot test was expanded to six additional stores in San Antonio and then to 16 stores in Detroit. This process of systematic testing and expanding continued until Vivint had deployed 400 salespeople in Best Buy stores.
While the roll-out did generate new sales, it was not nearly as successful as the first pilot in San Antonio. It was generally believed that the pilot was far more successful than the rollout for three reasons: it was conducted during the holidays when sales are higher, it was staffed with more talented salespeople, and it received a lot of attention from top management. Anthony Archibald noted that, “We would update Alex Dunn (company president) weekly and make decisions about trying out promotions, pricing, and expansion [of the pilot] into stores.” The good news for Vivint was that the successful pilot helped convince Best Buy to expand the partnership to additional stores. The bad news was that the performance of sales reps in other Best Buy stores didn’t come close to matching the performance of the pilot. Thus, both parties had inflated expectations from the pilot that were not realized with the rollout.
One of challenges faced by Vivint was the entry of Amazon and Google into some product categories of the SmartHome package. For example, Amazon purchased Ring, a provider of doorbell cameras, and also provided its own door locking/opening products that allowed a customer to let an Amazon delivery person open a locked door to deliver a package. Google purchased Nest, a provider of thermostats, which put Google in direct competition with Vivint’s SmartHome thermostats. At Best Buy, customers often wanted to buy separate components of a basic Vivint home system: security, door locks, cameras, and thermostats. However, Vivint salesmen were not allowed to unbundle the Vivint system, allowing customers to purchase only a doorbell camera or a door lock. The economics of selling a full system was far more profitable than selling a one-off product because once a technician was sent to a home to install one product installing additional products was easy. Some felt that this limited Vivint from generating significant sales through the Best Buy partnership.
Unfortunately, according to Best Buy CEO Hubert Joy in a call with analysts in late 2017, the Vivint–Best Buy alliance only had a moderate impact on revenue and sales. Within a few months of that analyst call, the companies announced that they had agreed to end the partnership. Despite the setback with Best Buy, Vivint CEO Todd Pedersen still believed that there were opportunities in pursuing a retail channel, saying, “We believe there are opportunities in the retail channel, and are committed to work towards more efficient ways to better help our customers explore, learn about, and buy the latest smart home products and services.”13
Business Partnership | Airbnb
As Vivint SmartHome continued to grow, it sought for ways to further establish itself as a leading smart home technology company. Vivint executives were determined to do this through a high-pro- file partnership with another company in Silicon Valley. In 2015, Laurence Tosi, a Blackstone executive who had worked extensively with Vivint, left to become the CFO of Airbnb.
Airbnb, founded in 2008, is a peer-to-peer property rental platform that has exploded in popularity over the past several years. In 2016, Fortune reported that Airbnb had booked more than $100 million in earnings before interest, tax, depreciation, and amortization (EBITDA) on $1.7 billion in revenue. Furthermore, Airbnb expected its EBITDA to swell to $450 million in 2017; a 350 percent increase.14 Vivint had tried previously to meet with Airbnb to propose a partnership but had been unsuccessful. With the help of Airbnb’s new CFO, Vivint secured a meeting and dazzled Airbnb with their vision of a potential partnership (See the pitch video here.) In January 2017, at the Consumer Electronics Show in Las Vegas, Vivint and Airbnb announced their partnership, with Vivint becoming Airbnb’s “preferred smart-home provider.” The partnership agreement contained two key features: host sign-ups and product integration.
Airbnb was drawn to the idea of having Vivint salespeople help find and sign up new hosts on Airbnb’s platform. In certain vacation destinations, there was far greater demand for rentals than available supply. In these areas, Airbnb struggled to find ways to incentivize new people to sign up as hosts and rent out their living space. Airbnb wanted to use Vivint salespeople in targeted areas to knock doors and sign up new hosts. In exchange, Airbnb would allow Vivint to market directly to Airbnb customers.
Through trial runs in Los Angeles, Vivint salespeople quickly discovered that they were able to help mitigate common concerns about hosting, such as how to handle security, cleanliness, and potential damages. With the promising results from the trial run, Vivint and Airbnb signed a pilot agreement to set up a Long Beach office with around 25 sales reps focused on signing up new hosts—and selling those new hosts on the benefits of installing a Vivint SmartHome system. Per the agreement, the sales reps would receive a small commission for every new Airbnb host. Further- more, for every 100 new hosts that signed up, Airbnb would unlock 10 percent of its user base for Vivint to send direct marketing materials to via e-mail.
Vivint envisioned making the Airbnb check-in process simpler through several new product features bundled as “Hands-Free Hosting”. When a guest booked a stay at an Airbnb listing equipped with Vivint SmartHome, the guest would immediately receive a temporary passcode to be used on the door lock upon check-in. Using the Vivint door camera, the Airbnb host would see the guest check-in and be notified when the guest left. The temporary passcode would expire at the end of the guest’s stay, removing any need to meet for a key exchange. Additionally, the Vivint thermostat would efficiently conserve energy while the listing was not being used. Hands-Free Hosting required only a software iteration and did not need any additional hardware products outside of a typical Vivint SmartHome system package. Additionally, current Airbnb hosts who signed up for Vivint Smart- Home (a monthly subscription) would receive some of the equipment free.
Both the host sign-up and product functionality portions of the partnership agreement began to experience serious issues after launch. While Vivint had envisioned creating a ‘magical’ experience for Airbnb guests, the actual functionality of “Hands Free Hosting” was unreliable— and sometimes didn’t work at all. Developers were stretched thin across several other Vivint projectsandthe Airbnbproject wasn’t bigenoughtowarrant the developer attention it desperately needed. As a result, Airbnb hosts were reluctant to sign up for a very unreliable service that cost
The Long Beach sales office quickly became another area of concern. Talented sales reps didn’t want to sell Airbnb because they could make significantly more money selling SmartHome systems. Airbnb paid a commission of just $200 for every new host, but a sales rep could make $600-$800 on just one SmartHome sale. Despite the misaligned incentives, the Long Beach office was able to sign up 160 new host for Airbnb. Airbnb was impressed with the performance and hoped to open more offices elsewhere in the country.
Due to the agreement and relative success of the sales teams, Vivint had the opportunity to market directly to a portion of Airbnb customers. Airbnb had never previously marketed to their customers in this way and wanted to firmly control the messaging. As a result, the direct marketing proved to be ineffective, with very few Airbnb customers signing up for Vivint systems. Vivint quickly realized that the host sign-up portion of the partnership agreement largely favored Airbnb. When the Long Beach office closed due to the departure of its management to pursue another opportu- nity, Vivint elected to not open any more Airbnb sales offices until a better arrangement could be worked out.
Vivint SmartHome is still listed as Airbnb’s preferred smart-home provider on Airbnb’s website. Hands-Free Hosting, while still not perfect, is now operational, and the few customers using it are reasonably satisfied. Employees at both companies are still hoping to find a way to make the part- nership work better in the future. But what steps should be taken or whether additional investment by Vivint is likely to pay off is unclear.
Taking Stock | Lessons for Finding Profitable Growth
As Matt Eyring discussed Vivint’s past growth initiatives with his team, he reflected on several of the lessons that they had learned as the company had pursued various growth options. The team discussed why some of the growth options—which all appeared to be promising at the time they were conceived—had failed to deliver on their promise. One thing was clear: generating new rev- enues (and profits) from growth options was certainly more difficult in practice than it was in theory. Eyring’s team identified what they thought were some useful lessons as they considered future growth options.
Leveraging Existing Resources and Capabilities
Every growth option was designed to leverage some of Vivint’s existing resources and capabilities. In practice, some of the key resources and capabilities did not translate into new ventures as well as they had anticipated. What could Vivint have done differently to more accurately identify what cost synergies existed before investing in a new growth option?
Like most organizations, Vivint had run pilots of its new growth opportunities to test whether it was likely to work. However, experience had taught the team that pilot tests of new initiatives were often misleading. Pilot tests received better resources and extra attention. Not surprisingly, this led to posi- tive results from the pilots and inflated performance expectations associated with the rollout of a new offering. The pilot tests were typically two to three times as productive as the actual rollout. Matt won- dered how he could best account for this phenomenon (which has been called the “Hawthorne effect” in academia due to early studies at the Hawthorne plant where increased attention to a pilot resulted in better performance). Was it possible to ensure that pilot tests were representative of the initiative at full scale? Or should Vivint simply discount the results of all pilot tests by a predetermined rate?
Customer Acquisition Costs
In most new growth initiatives Vivint was trying to leverage its direct salesforce, but even when leveraging its existing salesforce, customer acquisition costs were usually higher than initial pro- jections. Each new growth option seemed to target new customers instead of relying on existing customers to fuel growth. How could Vivint do a better at tapping into their existing customer base in order to decrease customer acquisition costs? And how could they do a better job at estimating customer acquisition costs for each new growth initiative?
Spread Too Thin?
Eyring’s team noted that Vivint had perhaps spread itself too thin at times. Pursuing multiple ave- nues of growth simultaneously had left some initiatives starved of resources. As promising growth options emerged, they received more time, attention, and company resources. As a result, other ventures with slower growth were neglected before they could be adequately tested. Some experts on creating growth do advocate starting many different ventures because it is difficult to predict which ones will succeed. According to this view, let “1000 flowers bloom” and quantity will ensure quality. The logic behind this approach is to expect that many new ventures fail—but its success requires lots of trials. However, using the analogy, Eyring could see that in many cases the growth of some flowers was an impediment to the growth of others, which were starved for attention and resources. Going forward, he wondered whether Vivint should be more selective in its pursuit of growth options or continue to test multiple growth options simultaneously.
Vivint had created two different channel partnerships, with Best Buy and Airbnb, as it pursued new areas of growth. While both partnerships had looked ideal on paper, neither provided as much value to Vivint as expected. Had Vivint overestimated what each side of the partnership could bring to the table? Did Vivint need to develop stronger partnership capabilities? If so, how might Vivint become more effective at creating value through partnerships with other companies?
Eyring and his team needed to answer the questions above to learn from their experiences. To best proceed, they needed to answer two other questions:
- Which, if any, of the recent growth initiatives should be given more attention and resources— or pursued using a different approach? For example, what actions should Vivint take with regard to the future of commercial security? Internet? Space Monkey/Smart Drive? AirBnb?
- What other growth opportunities, specifically related to SmartHome, should the company pursue as it anticipates competition in the SmartHome arena from giants like Amazon and Google?
1Todd Pedersen addressing students at Utah Valley University, https:// www.youtube.com/watch?v=fCyVXvU5hi8
2Todd Pedersen addressing students at Brigham Young University, https://www.youtube.com/watch?v=tXqvxIWZ0b8
3Vivint source on company founding details, https://www.youtube
6https://www.greentechmedia.com/articles/read/Vivint-a-Home- Automation-plus-Solar-Player-to-be-Acquired-by-Blackstone- f#gs.sG85has
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